Sharp rise in house prices

UK house prices jumped sharply last month, according to the Halifax building society. A 1.2 per cent jump during the month took the annual house price inflation rate to 8.4 per cent, writes Diane Coyle. The annual increase was in line with figures published by Nationwide last week, although it reported a small decline in prices during December.

Halifax insisted yesterday that fears of another increase in mortgage rates would prevent the market from overheating. "House price inflation should remain little changed in the coming year," yesterday's report said.

However, it admitted it had underestimated the extent of the recovery in 1996. Economists increasingly believe the rise in house prices this year could be much greater than previously expected. City experts expect an increase of 10 per cent, as opposed to the 7-8 per cent forecasts from mortgage lenders. Even though higher mortgage rates are likely, the cost of borrowing would still remain near its lowest since the mid-1960s. Pent- up demand to move home is expected to fuel the market.